herald

Wednesday 13 December 2017

Dan White: Time to cop on, we won't get a better deal on Aer Lingus

Willie Walsh
Willie Walsh

THE GOVERNMENT has announced that the "cast-iron" guarantees offered by IAG on Aer Lingus' Heathrow slots and its commitment to maintain Aer Lingus routes from Shannon and Cork Airports didn't go far enough.

As part of IAG's bid for the airline it says it will guarantee the slots and regional routes for five years. The Government wants the guarantees to run for longer.

Reading between the lines, it's not difficult to see that the Government parties are hopelessly split on the IAG takeover bid, with most of the Fine Gael ministers leaning in favour of acceptance while their Labour Cabinet colleagues remain adamantly opposed.

Transport Minister Paschal Donohoe, who before going into politics was the Irish commercial director for consumer products giant Procter and Gamble, must surely know that the jig is up for Aer Lingus.

At a time when the European aviation industry is consolidating around a "big five" of Ryanair, IAG, Air France, Lufthansa and EasyJet, each of whom fly between 60 million and 90 million passengers a year, the notion that Aer Lingus with annual passenger numbers of just 11 million can survive as a stand-alone airline is risible.

This is why after a period of haggling - IAG initially offered €2.30 a share, then €2.40 and finally €2.55 - the Aer Lingus board has come out in favour of the IAG bid.

reality

Aer Lingus chairman Colm Barrington, a vastly-experienced aviation industry veteran, is well aware of the challenges facing a small airline. In a rapidly changing European market, big is beautiful.

Unfortunately most of the Labour party seems determined to ignore the reality staring them in the face.

Labour ministers and TDs seem to think that if the Government refuses to accept the takeover offer for the State's remaining 25.2pc shareholding in Aer Lingus, IAG will go away and things can go back to normal.

If only life were that simple.

Two weeks ago IAG chief executive, and former Aer Lingus boss, Willie Walsh (inset), offered "cast-iron guarantees" on the Heathrow slots, telling politicians that his offer for Aer Lingus was not an opening gambit and that his record showed that if he did make a second offer for something, it was often at a lower price.

The message to the Government should have been clear: don't even think of messing around with me.

Unfortunately the message doesn't seem to have got through to our politicians. Instead, in what CityJet chairman Pat Byrne has described as "gombeen politics at its worst", the Government has effectively rejected the IAG offer for Aer Lingus.

So what happens next?

If Mr Walsh walks away the Aer Lingus share price will collapse and the Government can quickly forget about a €340m windfall.

Having recommended the IAG offer it is also difficult to see how Mr Barrington and his fellow-directors could remain on the Aer Lingus board. Far more likely is that they too would walk away.

Of course, what most of our politicians don't seem to realise is that they don't have the final say on the future ownership of Aer Lingus.

The largest Aer Lingus shareholder is not the state but Ryanair, which has a 29.9pc stake.

hostile

There is nothing to stop Mr Walsh from buying the Ryanair shareholding and launching a hostile takeover bid for Aer Lingus.

While the State shareholding is just over the 25pc limit, up to which a bidder could compulsorily buy its shares, does the Government really want to end up with a minority stake in an IAG subsidiary whose shares aren't traded on the stock exchange?

If IAG did go hostile then all of the promises made by Mr Walsh on the Aer Lingus jobs and slots would be null and void.

It's high time Minister Donohoe stopped trying to be all things to all men and forcefully explained the economic facts of life to Labour.

Because the sooner the Government calls a halt to the messing and takes the €340m cash on offer from IAG the better for all.

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